The recent ruling by a hearing officer with the California Labor Commission in a case involving an Uber driver is bad public policy.

The issue this ruling addresses — whether the driver should be classified as an “employee” or “contractor” — is of crucial importance to Uber and all the on-demand companies that use a similar business model. Having a fleet of employees is much more costly than a fleet of contractors. As a result, classifying on-demand drivers as employees will negatively impact the economics of Uber and most other on-demand services.

Reclassification as employees also negatively impacts on-demand drivers, potentially taking away their job flexibility and personal freedom. Contractors can set their own hours, for example, while employees typically cannot.

While this ruling is not helping anyone, it does have one positive. It shines a bright light on how archaic legislation can create negative externalities and incentives when applied to new business models. It clearly points out the need for a substantial update to our decades-old employment laws. Such laws must be revised so that they meet the needs of today’s evolving economy: for workers, businesses and the public.

Although the ruling has received a lot of media attention, it’s important to keep in mind that, in reality, it has very little legal effect. It only applied to one specific driver and dealt with whether Uber had to reimburse that driver for certain business-related expenses the driver claimed. The ruling is now on appeal, which is likely to take months, if not years.

On appeal, the court will review it de novo, meaning the court approaches the case as if it were considering it for the first time, giving no deference to the hearing officer’s ruling. So the hearing officer’s ruling actually has no precedential value inside or outside of California.

Interestingly, U.S. District Court Judge Vince Chhabria summed up the situation quite eloquently in a recent case involving Lyft:

“As should now be clear, the jury in this case will be handed a square peg and asked to choose between two round holes. The test the California courts have developed over the 20th century for classifying workers isn’t very helpful in addressing this 21st century problem.”

Judge Chhabria clearly understands that the on-demand economy has created a new category of worker, one that does not fit into either the employee category or the 1099/contractor category. More broadly, these “1099 decisions” point out the simple fact that the innovation needed to build our 21st-century economy means today’s business practices are often way ahead of existing laws and regulations.

This is why we need governments to work with the on-demand companies to update our outdated employment laws so they serve the needs of all the constituencies: the workers, the companies and the public.

As one of the leading service providers to the on-demand economy — helping companies overcome safety and trust challenges — we are in conversations with all the players on a regular basis. We hear repeatedly from large and small companies that there needs to be a new, “third way” to classify workers in the on-demand economy.

Indeed, we need a new way that does not force on-demand companies to apply Jiu-Jitsu to their business practices so as to avoid the 1099/W2 dichotomy. This “third-way” of classifying workers must give workers the freedom and flexibility they want, but also allow on-demand companies to provide their workers with proper training and incentives without triggering the “W2-ification” of their workforce.

To be successful, the “third-way” must also acknowledge the covenant between drivers, on-demand companies and the communities they serve. It must allow the tech-forward innovation that enables better, cheaper and more convenient mobility services, while promoting public safety and fair employment.

We believe that the “third-way” can be developed fairly quickly, and that most on-demand companies would gladly adopt it, even participate in crafting it.

What’s needed is an update to our employment laws that allows for a range of models, including the “third-way” hybrid between contractor and employee, a “Contractee.” This will allow for the innovation that keeps our economy vibrant, protect workers and keep our roads and communities safe.

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Crunchbase

OverviewUber, a [San Francisco](/location/san-francisco/528f5e3c90d111115d1c2e4ff979d58e)-based technology startup, is innovating at the intersection of lifestyle and logistics. Uber connects riders with safe, reliable, convenient transportation providers at a variety of price-points in cities around the world.